Construction Costs Outpace Other Inflation Measures

According to the Bureau of Labor Statistics’ (BLS) producer price indexes (PPI), the prices for materials used in all types of construction plus items consumed by contractors, such as diesel fuel, climbed 0.6% in February, compared to 0.2% for the PPI for finished goods and 0.3% for the consumer price index (CPI), before seasonal adjustment. In February, there were jumps in the PPIs for many construction materials: 5.8% for copper and brass mill shapes, 3.5% for hot-rolled bars, plates, and structural shapes for rebar and structural steel, and 2.2% for diesel fuel. From December 2003 through February 2008, prices for construction inputs have spiked 31%, compared to a 15% increase for the CPI.

This discrepancy is especially worrisome for contractors on public projects, says Ken Simonson, chief economist for The Associated General Contractors of America, Arlington, Va. “Public agencies often rely on the CPI to project future costs but they are coming up short of the dollars needed to award contracts,” he says. “The problem is most acute with highway projects, where the huge run-ups in diesel, asphalt, concrete, and steel costs have pushed up the PPI by 50% since December 2003.”

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